Software Hub is deciding whether to purchase new accounting software.The cost of the software package is $55,000,and its expected life is 10 years.The payback for this investment is four years.Assuming equal yearly cash flows,what are the expected annual net cash savings from the new software? (Assume the investment has no salvage value.)

Question

Quizplus · Accepted Answer

To calculate the expected annual net cash savings, we need to first calculate the total cash savings over the software's life.

Total cash savings = Cost of software - (Payback period x Annual savings) 
$55,000 - (4 x Annual savings) = $0

Annual savings = $13,750

Therefore, the expected annual net cash savings from the new software is $13,750.

Option C is the only choice that matches this value.

Software Hub Is Deciding Whether to Purchase New Accounting Software